Financial Accounting: Recording, Analysis and Decision Making · 2019-04-10 · Financial Accounting Reporting Analysis and Decision Making 5th Edition Carlon Solutions Manual Full

Solutions Manual

to accompany

Financial Accounting:

Recording, Analysis and Decision Making

Fifth Edition

Prepared by

Shirley Carlon

John Wiley & Sons Australia, Ltd 2016

Financial Accounting Reporting Analysis and Decision Making 5th Edition Carlon Solutions ManualFull Download: https://alibabadownload.com/product/financial-accounting-reporting-analysis-and-decision-making-5th-edition-carlon-solutions-manual/

This sample only, Download all chapters at: AlibabaDownload.com

https://alibabadownload.com/product/financial-accounting-reporting-analysis-and-decision-making-5th-edition-carlon-solutions-manual/

Chapter 1: An introduction to accounting

© John Wiley and Sons Australia Ltd, 2016 1.1

CHAPTER 1 – AN INTRODUCTION TO ACCOUNTING ASSIGNMENT CLASSIFICATION TABLE

Learning Objectives Brief

Exercises Exercises Problems

1. Explain the business context and the need for decision making.

1

2. Define accounting, describe the accounting process and define the diverse roles of accountants.

1

3. Explain the characteristics of the main

forms of business organisation. 1 1A,1B

4. Understand the Conceptual Framework

and the purpose of financial reporting.

5. Identify the users of financial reports and

describe users’ information needs. 3 1 2A; 2B

6. Identify the elements of each of the four

main financial statements. 4,5,6 1,2,3,4,5,

7, 8,9,10 3A,4A,5A,6A 7A,8A,3B,4B 5B,6B,7B,8B

7. Describe the financial reporting

environment. 2

8. Explain the accounting concepts,

principles, qualitative characteristics and constraints underlying financial statements

6 3A, 3B

9. Calculate and interpret ratios for

analysing an entity’s profitability, liquidity and solvency.

7 11,12,13 9A,10A 9B,10B

Solutions manual to accompany Financial Accounting: Reporting, Analysis and Decision Making 5e


CHAPTER 1 – INTRODUCTION TO ACCOUNTING

ANSWERS TO QUESTIONS

1. The first step in the process of decision making is to identify the issue or the decision to be made. The next step is to gather the relevant information required for the analysis. Once gathered, you then identify the tool or technique that can provide the analysis of the issue so a decision may be made. The final step is to evaluate the results of the analysis and make the decision. The primary function of accounting is to relevant information to aid in making a business decision.

2. When running a business most of your actions require decisions. Beginning with deciding which is the most suitable business structure and where are you going to locate your business and are you going to have an online presence as well, how are you going to fund your activities (borrow or have equity investors), how many employees do you need and what level of inventory is required to name a few decisions. When starting a new business deciding on the suitable accounting system and information system is important. Are you intending to have eftpos? Are you going to have online sales? Etc.

3. Advantages of company structure are limited liability (shareholders not being personally liable for corporate debts), indefinite life, easy transferability of ownership (through selling shares), and greater ability to raise funds. Disadvantages of a company are the establishment costs and ongoing fees and increased government regulations.

4. External users are those outside the business who have an interest in knowing about the activities of the entity as resource providers, recipients of goods or services or parties performing a review of oversight function. Examples include investors, creditors such as banks and suppliers, taxing authorities, regulatory agencies, trade unions and customers.

5. (a) Statement of profit or loss.

(b) Statement of financial position.

(c) Statement of financial position.

(d) Statement of profit or loss.

(e) Statement of financial position.

(f) Statement of financial position.

6. The Conceptual Framework consists of a set of concepts to be followed by preparers of financial statements and standard setters. The Conceptual Framework provides guidance to preparers of financial information by defining who is required to report and who the users are likely to be.



7. It is important to determine if a business is a reporting entity as it is only reporting entities that are required to prepare general purpose financial reports in accordance with the accounting standards.

Three main indicators determine which of the forms of business organisation fall into the category of a reporting entity. That is, an entity is more likely to be classified as a reporting entity if it is (1) managed by individuals who are not owners of the entity, (2) politically or economically important, and (3) sizable in any of the following ways — sales, assets, borrowings, customers or employees.

8. The three categories in the statement of cash flows are operating activities, investing activities and financing activities. The categories were chosen because they represent the three principal types of business activity.

9. Retained earnings is the profit retained in a company. Retained earnings is increased by profit and is decreased by dividends and by losses.

10. The going concern principle lends credibility to the cost principle; otherwise items would be reported at liquidation value. By assuming the entity will continue to operate, assets can continue to be reported at cost because they are expected to bring benefits to the business through use even though they may have little or no resale value.

11. Rose Ena is correct. Comparability means that financial statements can be compared between companies and over time. Using the same accounting principles and accounting methods from period to period with a company, facilitates comparability. When accounting methods are inconsistent, it is difficult to determine whether a company is better off, worse off or the same from period to period.

12. A company’s operating cycle is the average time taken to acquire goods and services and convert them to cash in producing revenues.

13. (a) Tia is not correct. There are three characteristics: liquidity, profitability; and solvency

(b) The three parties are not primarily interested in the same characteristics of a company. Short-term creditors are primarily interested in the liquidity of the business. In contrast, long-term creditors and shareholders are primarily interested in the profitability and solvency of the company. However, they may use the same financial statements as a source of information.



14. (a) The increase in profit margin is good news because it means that a larger percentage of profit is generated for each dollar of net sales.

(b) An increase in the current ratio generally signals good news because the company improved its liquidity.

(c) The decrease in the debt to total assets ratio is good news because it means that the company has decreased the proportion of assets funded by creditors, thus reducing risk of being unable to repay debt.

(d) An increase in current cash debt coverage ratio is good news because it means that the company has increased its ability to meet short-term obligations. The higher the current cash debt coverage the more favourable is the liquidity of the business.



SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1.1

(a) P Shared control, increased skills and resources.

(b) SP Simple to set up and maintain control with founder.

(c) C Easier to transfer ownership and raise funds, no personal liability.

BRIEF EXERCISE 1.2

(a) False

(b) True

(c) False

BRIEF EXERCISE 1.3

1. Trying to determine whether the company complied with the Corporations Act. 2. Trying to determine whether the entity can pay its obligations. 3. Trying to determine whether a major investment proposal will be cost effective. 4. Trying to determine whether the company’s profit will result in a share price increase. 5. Trying to determine whether the entity should use debt or equity financing. (a) 3 Executive directors

(b) 2 Bank managers

(c) 4 Shareholders

(d) 5 Chief Financial Officer

(e) 1 ASIC



BRIEF EXERCISE 1.4

ABC Pty Ltd

Statement of financial position

as at 31 December 2015

Assets

Cash $30 000

Accounts receivable 10 000

Inventory 7 500

Total assets 47 500

Liabilities

Accounts payable 32 500

Net assets $15 000

Equity

Share capital 15 000

Total equity $15 000

BRIEF EXERCISE 1.5

PorL (a) Revenues during the period.

SFP (b) Accounts receivable at the end of the year.

SCF (c) Cash received from borrowing during the period.

SCF (d) Cash payments for the purchase of property, plant and equipment.

BRIEF EXERCISE 1.6

Swift Ltd Statement of financial position (Partial)

Current assets: Cash $4,500 Short-term investments 12,000 Accounts receivable 15,000 Supplies 2,000 Prepaid rent 1,000 Total current assets 34,500 Non-current assets: Property, plant and equipment 40,000 Total non-current assets 40,000 Total assets $74,500



BRIEF EXERCISE 1.7

Return on assets ratio = assets total Average

Profit = 23%

$5,113,000

$1,176,000

Profit margin ratio = Sales

Profit = 15%

$7,840,000

$1,176,000



SOLUTIONS TO EXERCISES

EXERCISE 1.1

(a) 1 Auditor’s opinion

(b) 2 Accounts payable

(c) 9 Share capital

(d) 7 Company

(e) 3 Accounts receivable

(f) 8 Equity Investors

(g) 4 Sole trader

(h) 5 Partnership

(i) 6 Decision

EXERCISE 1.2

Rosie’s Rentals Pty Ltd Statement of profit or loss

for the year ended 31 December 2015

$ $ Revenues: Hire revenue 140,000 Expenses: Advertising expense 3,000 Electricity expense 4,800 Rent expense 20,200 Wages expense 56,000 Total expenses 84,000 Profit $56,000

Rosie’s Rentals Pty Ltd

Calculation of retained earnings for the year ended 31 December 2015

$ Retained earnings, 1 January 90,000 Add: Profit 56,000 146,000 Less: Dividends (14,000) Retained earnings, 31 December $132,000



EXERCISE 1.3 Quality Products Ltd

Statement of financial position as at 30 June 2015

Assets: Cash $15,000 Accounts Receivable 6,000 Supplies 5,600 Inventory 28,400 Total assets 55,000 Liabilities: Accounts payable 15,000 Net Assets

Equity:

$40,000

Share capital $25,000 Retained earnings *15,000 40,000

Total Equity $40,000 *$18,000 – $3,000

EXERCISE 1.4

Black Ltd

(a) Eq Retained earnings $2,000 E Cost of sales 24,600

E Wages expense 18,300

A Cash 11,200

L Current payables 14,500 E Interest expense 6,200

E Other expense 1,100

E Depreciation expense 1,800 L Non-current borrowings 22,000

A Inventories 4,500

R Sales revenue 66,000

A Accounts Receivable 12,000 Eq Reserves 8,000

E Income tax expense 4,200

Eq Contributed equity 30,000

A Property and Equipment 20,000



(b) Calculation of profit for Black Ltd for the year ended 30 June 2015

$ $ Sales revenue 66,000 Expenses: Cost of sales 24,600 Wages expense 18,300 Interest expense 6,200 Other expense 1,100 Depreciation expense 1,800 Income tax expense 4,200 Total expenses 56,200 Profit $9,800

EXERCISE 1.5

Road Ltd

Note to solve the missing amounts the student needs to decide the order to solve the missing amounts 1. The Statement of changes in equity shows the ending retained earnings as $45,000 which then can be substituted into the Statement of financial position so that (b) equals $45,000. 2. Now (a) Contributed equity can be calculated. Accounts payable + Contributed equity + Retained earnings = Total liabilities and equity. $26,000 + (a) + $45,000 = $106,000 (a) = $106,000 – $45,000 – $26,000 (a) = $35,000 3. Items (d) and (e) are the same figure. Therefore solve (e) first in the Statement of changes in equity Beginning retained earnings+ Profit – Dividends = Ending retained earnings $12,000 + (e) – $8,000 = $45,000 (e) = $45,000 –$12,000 + $8,000 (e) = $41,000 and also (d) equals $41,000 4. Lastly now item (c) can be calculated Revenue – Cost of sales – Administrative expenses = Profit $200,000 – (c) – $14,000 = $41,000 $200,000 – $14,000 – $41,000 = (c) (c) = $145,000



EXERCISE 1.6

Cheong Pty Ltd (a) This is a violation of the cost principle. The inventory was written up to its market

value when it should have remained at cost. (b) This is a violation of the accounting entity concept. The treatment of the transaction

treats Cheong Kong and Cheong Pty Ltd as one entity when they are two separate entities. The computer should not have been charged to the expense account. If paid for by the business, it should have been treated as a loan from the business to Cheong Kong.

(c) This is a violation of the period concept. This concept states that the economic life of

an entity can be divided into artificial time periods (months, quarters or a year). By adding two more days to the year, Cheong Pty Ltd would be misleading financial statement users. In addition, 2015 results would not be comparable to previous years’ results, and the problem would recur in 2016. The period should have been 52 weeks or 53 at the most. Retailers often use a complete number of weeks rather than an exact year. As a 365-day year consists of 52 weeks plus one day, many retailers use 52-week periods and then, approximately every 5 years, use a 53-week year. However, this is fully disclosed for comparative purposes. For example Woolworths Limited.

EXERCISE 1.7

AGL Energy Limited Ltd Statement of financial position (Partial)

as at 30 June 2013

$M Current assets: Cash and cash equivalents 281.0 Receivables 1844.0 Inventories 133.0 Other financial assets 186.9 Other current assets 391.1 Total current assets 2836.0 Non-current assets Receivables 47.3 Inventories 29.2 Investments (long term) 33.1 Exploration and evaluation assets 349.0 Oil and gas assets 495.1 Property, plant and equipment 5331.6 Intangibles 3149.4 Deferred tax assets 729.2 Other financial assets 338.5 Other non-current assets 27.4 Total non-current assets 10529.8 Total assets $13365.8



EXERCISE 1.8

Goodman Fielder Limited Statement of financial position (Partial)

as at 30 June 2013

$M Current assets: Cash and cash equivalents 403.1 Trade and other receivables 162.9 Inventories 128.9 Derivative financial instruments 0.1 Current tax receivable 9.1 Other current assets 14.6 Assets held for sale 1.7 Total current assets 720.4 Non-current assets Receivables 0.8 Investments in jointly controlled entities 5.5 Property, plant and equipment 511.5 Deferred tax assets 47.1 Intangible assets 1490.5 Other non-current assets 1.0 Total non-current assets 2056.4 Total assets $2776.8

EXERCISE 1.9 (a)

Christchurch Flooring Pty Ltd Statement of Profit or Loss

for the year ended 31 July 2015

$ $ Revenues: Sales revenue 62,000 Less: Cost of sales 30,000 Gross profit 32,000 Other revenue Rent revenue 30,000 Expenses: Salaries expense 25,000 Depreciation expense 4,000 Other expenses 18,000 Total expense (47,000) Profit $15,000

Calculation of Retained Earnings for the year ended 31 July 2015

$ Retained earnings, 1 August 2014 2,000 Add: Profit 15,000 Retained earnings, 31 July 2015 $17,000



(b)

Christchurch Flooring Pty Ltd Statement of financial position

as at 31 July 2015

$ $ Current assets: Cash 33,000 Inventory 26,000 Total current assets 59,000 Non-current assets: Land 80 000 Building 70,000 Less: Accumulated depreciation (12,000) 58,000 Total non-current assets 138,000 Total Assets 197,000 Current liabilities: Accounts payable 8,000 Rent received in advance 2,000 Total current liabilities 10,000 Non-current liabilities Bank loan 80 000 Total non-current liabilities 80,000 Total liabilities 90 000 Net Assets $107 000 Equity Share capital 90,000 Retained earnings 17,000 Total equity $107,000



EXERCISE 1.10 (a)

Teddy Pty Ltd Statement of Profit or Loss

for the year ended 31 July 2017

$ $ Revenues: Sales revenue 100,000 Less: Cost of sales 42,000 Gross profit 58,000 Other revenue Rent revenue 36,000 Expenses: Salaries expense 27,000 Depreciation expense 5,400 Other expenses 26,600 Total expense 59,000 Profit $ 35,000

(b)

Teddy Pty Ltd Calculation of Retained Earnings for the year ended 30 June 2017

$ Retained earnings, 1 July 2016 10,900 Add: Profit 35,000 Retained earnings, 30 June 2017 $45,900



(c) Teddy Pty Ltd


$ $ $ Current assets: Cash 42,500 Inventory 36,200 Total current assets 78,700 Non-current assets: Land 265,000 Building 196,000 Less: Accumulated depreciation 19,600 176,400 Total non-current assets 441,400 Total Assets 520,100 Current liabilities: Accounts payable 39,400 Rent received in advance 5,800 Total current liabilities 45,200 Non-current liabilities Bank loan 208,000 Total non-current liabilities 208,000 Total liabilities 253,200 Net Assets $266,900 Equity Share capital 221,000 Retained earnings 45,900 Total equity $266,900



EXERCISE 1.11

Retail Ltd (a) Working capital = current assets – current liabilities Beginning of year $53,764,000 = $223,313,000 – $169,549,000

End of year: $78,485,000 = $208,426,000 – $129,941,000 Current ratio = current assets/current liabilities Beginning of year: 1.32:1 = $223,313,000 / $169,549,000 End of year: 1.60:1 = $208,426,000 / $129,941,000

(b) These measures indicate that Retail Ltd’s liquidity improved during the year.



EXERCISE 1.12

AGL

2013 $ M

2012 $ M

(a) Debt to assets

ratio 45.08.13365$

8.6026$ or 45.09% 52.0

4.14738$

5.7605$ or 51.6%

(b) Cash debt coverage ratio

088.0

2

7605$6027$

8.601$

085.0

2

3354$7605$

5.466$

(c) The ratio of debt to total assets decreased, indicating decreased reliance on debt, and,

AGL’s cash flows from operating activities increased and the coverage of total liabilities increased marginally.

(d) In 2013 AGL’s cash provided by operations ($601.8.0M) was sufficient to cover the

cash used in investing activities ($549.6M). In 2012 the net investing activities ($531.3M)was more than the cash generated from operating activities there was a cash deficiency AGL, being a publicly listed company, could raise more money from the public through the issue of shares or borrow funds. If the Statement of cash flows is downloaded then it can be seen that the cash from operating activities did cover investing outflows but was not sufficient to cover financing resulting in a net decrease in cash for the year of $1584.1M. In 2012 cash increased by $1124.6M. Cash flow from operating activities was $466.5M and a review of the statement of cash flows indicates cash from new share issues of $883.8M plus an increase in net borrowings $431M. This was used in 2013 to repay borrowings of $1 543.9M

Note to instructor This exercise would be suitable for post graduate class and also provide the URL so that can complete the response in more depth. If students wish to investigate Wattyl’s annual report the web address is http://agl.com.au/about/InvestorToolkit/Pages/AnnualReports.aspx



EXERCISE 1.13

Goodman Fielder Limited

2013 $’000

2012 $’000

(a) Debt to assets

ratio 44.0$2776.8

$1224.5 or 44.1% 49.0

$2693.8

$1318.7 or 48.95%

(b) Cash debt

coverage ratio

14.0

2

$1318.7$1224.5

$178.7

09.0

2

$1482.8$1318.7

$129

(c) The ratio of debt to total assets decreased from 49% to 44%, indicating decreased

reliance on debt. The net cash flows from operations increased and the cash coverage of total liabilities increased slightly indicating an better solvency position.

(d) However the cash flows from operating activities in both years is greater than required

for investing activities and in both years. If the cash flows statement was to be downloaded you would see that during 2013 a segment of the business was sold and this was used to pay off debt. In both years there was an increase in the cash position. It should be remembered the cash position only tells part of the story mid-way through 2014 the company on the back of declining profit forecast was subject to a takeover from a Singaporean company. The Directors at the time of writing this solution have just advised the shareholders to accept the takeover offer.

If students wish to investigate Goodman Fielder’s annual report the web address is: http://www.goodmanfielder.com.au/index.php?q=node/147



SOLUTIONS TO PROBLEM SET A

PROBLEM SET A 1.1 (a) The concern over legal liability would make the limited liability company form a better

choice over a partnership. Also, the corporate form will allow the business to raise cash more easily which may be of importance in a rapidly growing industry.

(b) Sarah and Andrew should adopt the partnership form because it facilitates bringing

together the contribution of skills and resources. Also there does not appear to be any expected needs for further fund in the near future.

(c) The fact that the combined business expects that it will need to raise significant funds

in the near future makes the company form more desirable in this case. (d) It is likely that this business would form as a partnership. Its needs for additional

funds would probably be minimal in the foreseeable future. Also, the three know each other well and would appear to be contributing equally to the firm. Service firms, like consulting businesses, are frequently formed as partnerships. Alternatively, they may prefer the company form to simplify subsequent expansion and take advantage of limited liability, but they would need to consider the additional regulation that it would involve.

(e) One way to ensure control would be for Anthony to form a sole proprietorship.

However in order for this business to thrive, it will need a substantial investment of funds early. This would suggest the company form of business. In order for Anthony to maintain control over the business, he would need to own more than 50 percent of the voting power. In order for the business to grow, he may have to be willing to give up some control.

PROBLEM SET A 1.2

(a) In deciding whether to extend credit for 30 days you would be most interested in the Statement of financial position because it shows the assets on hand that would be available for settlement of the debt in the near-term.

(b) In purchasing an investment that will be held for an extended period, the investor

must try to predict the future performance of Domino’s. The statement of profit or loss provides the most useful information for predicting future performance.

(c) In extending a loan for a relatively long period of time, the bank is most interested in

the probability that the company will generate sufficient income to meet its interest payments and repay its principal. The bank would therefore be interested in predicting future profit using the statement of profit or loss.

It should be noted, however, that the lender would also be very interested in both the Statement of financial position and the Statement of cash flows — the Statement of financial position would show the amount of debt the company has already incurred, as well as assets that could be liquidated to repay the loan. And the bank would be interested in the Statement of cash flows because it would provide useful information for predicting the company’s ability to generate cash to repay its obligations.

(d) The finance director would be most interested in the Statement of cash flows since it shows how much cash the company generates and how that cash is used. The Statement of cash flows can be used to predict the company’s future cash-generating ability.



PROBLEM SET A 1.3

Smart Travel Goods Pty Ltd (a) 1. The accounting entity concept states that economic events can be identified with

a particular unit of accountability. Since the Sunshine Coast villa is the personal property of Mark Austin – not Smart Travel Goods Pty Ltd – it should not be reported on the company’s Statement of financial position. Likewise, the loan is a personal loan of Mark Austin – not a liability of the company.

2. The cost principle dictates that assets are recorded at their original cost.

Therefore reporting the inventory at $40,000 would be improper and violates the cost principle. The inventory should be reported at $15,000.

3. Including the personal telephone account payable is a violation of the accounting

entity concept. The $6,000 payable is not a liability of Smart Travel Goods Pty Ltd. If the company pays the telephone account on behalf of Mark Austin, it should be accounted for as a loan to Mark.

(b)

Smart Travel Goods Pty Ltd Statement of financial position

as at 30 June 2015

$ $ Assets Cash 30 000 Accounts receivable 23 000 Inventory 15 000 Total assets 68,000 Liabilities Accounts payable ($30,000-$6,000) 24,000 Notes payable 12,000 Total liabilities 36,000 Net Assets $32,000 Equity 32,000 Total equity $32,000



PROBLEM SET A 1.4 PQR Pty Ltd

Statement of profit or loss for the month ended 31 October 2015

$ $ Revenues: Service revenue 25,000 Expenses: Advertising expense 1,200 Fuel expense 8,700 Insurance expense 1,000 Rent expense 4,000 Repair expense 800 Total expenses 15,700 Profit $9,300

PQR Pty Ltd

Calculation of Retained Earnings for the month ended 31 October 2015

$ Retained earnings, 1 October 0 Add: Profit 9,300 9,300 Less: Dividends (2,000) Retained earnings, 31 October $7,300

PQR Ltd

Statement of financial position as at 31 October 2015

$ $ Assets: Current Assets Cash 9,200 Accounts receivable 28,500 37,700 Non-Current Assets Equipment 80,000 Total assets 117,700 Liabilities: Current Liabilities Accounts payable 5,400 Non-Current Liabilities Bank loan 40,000 Total liabilities 45,400 Net Assets $72,300 Equity: Share capital 65,000 Retained earnings 7,300 Total equity $72,300



PROBLEM SET A 1.5 Daisy Ltd

Dunstan Ltd should include the following items in its Statement of cash flows: Cash paid to suppliers Cash dividends paid Cash paid to purchase equipment Cash received from customers Cash received from share issue

Daisy Ltd Statement of cash flows


Cash flows from operating activities: Cash received from customers $264,000 Cash paid to suppliers (195,000) Net cash provided by operating activities 69,000 Cash flows from investing activities: Cash paid to purchase equipment (35,000) Net cash used in investing activities (35,000) Cash flows from financing activities: Cash received issue of shares 10,000 Dividends paid (15,000) Net cash used in financing activities (5,000) Net increase in cash $29,000



PROBLEM SET A 1.6 Ultra Pty Ltd

Statement of profit or loss for the month ended 31 May 2016

$ $ Revenues: Service revenue 42 800 Expenses: Advertising expense 800 Fuel expense 3 600 Insurance expense 2 600 Rent expense 12 500 Repair expense 1 800 Total expenses 21 300 Profit $21 500

Ultra Pty Ltd

Calculation of Retained Earnings for the month ended 31 May 2016

$ Retained earnings, 1 May 0 Add: Profit 21 500 21 500 Less: Dividends (2 000) Retained earnings, 31 May $19 500

Ultra Pty Ltd

Statement of financial position as at 31 May 2016

$ $ Assets: Current Assets Cash 30 500 Accounts receivable 25 400 55 900 Non-Current Assets Equipment 87 000 Total assets 142 900 Liabilities: Current Liabilities Accounts payable 8 400 Non-Current Liabilities Bank loan 40 000 Total liabilities 48 400 Net Assets $94 500 Equity: Share capital 75 000 Retained earnings 19 500 Total equity $94 500



PROBLEM SET A 1.7 Liddy Ltd

Pod Ltd should include the following items in its Statement of cash flows: Cash paid to suppliers Cash dividends paid Cash paid to purchase equipment Cash received from customers

Liddy Ltd Statement of cash flows

for the year ended 30 June 2016

Cash flows from operating activities: Cash received from customers $148 000 Cash paid to suppliers (85 000) Net cash provided by operating activities 63 000 Cash flows from investing activities: Cash paid to purchase equipment (25 000) Net cash used in investing activities (25 000) Cash flows from financing activities: Dividends paid (9 000) Net cash used in financing activities (9 000) Net increase in cash $29 000



PROBLEM SET A 1.8 Boral Ltd

Balance Sheet as at 30 June 2013

$’m Current assets: Cash and cash equivalents 149.9 Cash on deposit 70.6 Receivable 887.8 Inventories 680.0 Other financial assets 11.6 Other current assets 11.6 Total current assets 1842.7 Non-current assets: Receivables 16.8 Inventories 19.6 Investments accounted for using equity method 34.6 Other financial assets 23.5 Property, plant and equipment 3347.1 Intangible assets 849.9 Deferred tax asset 133.7 Other non-current assets 48.5 Total non-current assets 4473.7 Total assets 6316.4 Current liabilities: Payables 760.1 Loans and borrowings 126.9 Current tax liabilities 19.1 Provisions 212.0 Total current liabilities 1174.3 Non-current liabilities: Payables 9.4 Loans and borrowings 1539.6 Other financial liabilities 25.5 Deferred tax liabilities 57.6 Provisions 116.5 Total non-current liabilities 1748.6 Total liabilities 2922.9 NET ASSETS $3393.5 Equity: Issued Capital 2433.8 Reserves 74.4 Retained earnings 796.0 Total parent entity interest 3304.2 Non-controlling interests 89.3 TOTAL EQUITY $3393.5

If students wish to look up Boral’s annual report the web address is http://www.boral.com.au/PromoList/annual_sustainability_reports.asp



PROBLEM SET A 1.9 City Sales Pty Ltd

(a) Working capital = $474,500 – $250,000 = $224,500

(b) Current ratio = 1:1.9

$250,000

$474,500

(c) Current cash debt coverage ratio = times1.5

2

$100,000$250,000

$260,000

(d) Debt to total assets ratio = 1:0.453

$1,014,800

$460,000 or 45.3%

(e) Cash debt coverage ratio = times0.7

2

$300,000$460,000

$260,000

(f) Profit margin ratio = 1:0.052

$2,200,000

$115,000 or 5.2 %

(g) Return on assets ratio =

1:0.127$902,800

$115,000

2

$1,014,800$790,800

$115,000

OR 12.7%

.



PROBLEM SET A 1.10

AKA Ltd and UFO Ltd

Ratio AKA UFO

(All dollars are in thousands) (a) Working

capital $33,000 - $15,000 = $18,000 $20,000 - $10,000 = $10,000

(b) Current ratio 2.2:1 ($33,000 ÷ $15,000) 2.0:1 ($20,000 ÷ $10,000) (c) Debt to total

assets ratio 53.1% [($15,000 + $70,000) ÷ $160,000] 87.2% [($10,000 + $160,000) ÷

$195,000] (d) Return on

assets 10.7% = 2/000,140$000,160$

000,16$

2/000,155$000,195$

000,5$%9.2

(e) Profit margin

ratio 13.3% = 000,120$

000,16$ 5.0% =

000,100$

000,5$

(f) The comparison of the two companies shows the following: Liquidity – AKA’s current ratio of 2.2:1 is better than UFO’s 2.0:1. AKA also has higher

working capital than UFO.

Solvency – AKA’s debt to total assets ratio is lower than that of UFO, indicating that AKA has better solvency. Profitability – AKA has a higher return on assets and profit margin ratio than UFO, indicating that it is more profitable than UFO. Note that UFO’s higher borrowing costs, resulting from its greater reliance on debt, has reduced its profitability.



SOLUTIONS TO PROBLEM SET B

PROBLEM SET B 1.1 (a) One way to ensure control would be for Fiona to form a sole proprietorship. However

in order for this business to thrive, it will need a substantial investment of funds early. This would suggest the company form of business. In order for Fiona to maintain control over the business, she would need to own more than 50 percent of the voting power. In order for the business to grow, she may have to be willing to give up some control, maybe her family would also invest or loan the business funds in the early stages of establishment.

(b) Mark should incorporate the business to minimise tax plus he will need to prepare

financial forecast to present to the financial institutions to borrow funds. It is likely Mark would not immediately have the advantage of limited liability as the financial institutions would usually require a personal guarantee from Mark for the debt borrowings.

(c) It is likely that this business would form as a partnership. Its needs for additional

funds would probably be minimal in the foreseeable future. Also, the three know each other well and would appear to be contributing equally to the business. Alternatively, they may prefer the company form to simplify subsequent expansion and take advantage of limited liability, but they would need to consider the additional regulation that it would involve.

(d) Amanda and Jessica should adopt the partnership form because it facilitates bringing

together the contribution of skills and resources. Also there does not appear to be any expected needs for further fund in the near future.

(e) The fact that the combined business expects that it will need to raise significant funds

in the near future makes the company form more desirable in this case.



PROBLEM SET B 1.2

(a) The finance director would be most interested in the Statement of cash flows since it shows how much cash the company generates and how that cash is used. The Statement of cash flows can be used to predict the company’s future cash-generating ability.

(b) In purchasing an investment that will be held for an extended period, the investor

must try to predict the future performance of Woolworths’. The statement of profit or loss provides the most useful information for predicting future performance.

(c) In deciding whether to extend credit for 30 days you would be most interested in the

Statement of financial position because it shows the assets on hand that would be available for settlement of the debt in the near-term.

(d) In extending a loan for a relatively long period of time, the bank is most interested in

the probability that the company will generate sufficient income to meet its interest payments and repay its principal. The bank would therefore be interested in predicting future profit using the statement of profit or loss.

It should be noted, however, that the lender would also be very interested in both the Statement of financial position and the Statement of cash flows — the Statement of financial position would show the amount of debt the company has already incurred, as well as assets that could be liquidated to repay the loan. And the bank would be interested in the Statement of cash flows because it would provide useful information for predicting the company’s ability to generate cash to repay its obligations



PROBLEM SET B 1.3

Jupiter Pty Ltd (a) 1. The accounting entity concept states that economic events can be identified with

a particular unit of accountability. Since the Port Macquarie villa is the personal property of Mary Eagle – not Jupiter Pty Ltd – it should not be reported on the company’s Statement of financial position. Likewise, the loan is a personal loan of Mary Eagle – not a liability of the company.

2. The cost principle dictates that assets are recorded at their original cost.

Therefore reporting the inventory at $75,000 would be improper and violates the cost principle. The inventory should be reported at $25,000.

3. Including the personal electricity account payable is a violation of the accounting

entity concept. The $2,000 payable is not a liability of Jupiter Pty Ltd. If the company pays the electricity account on behalf of Mary Eagle, it should be accounted for as a loan to Mary.

(b)

Jupiter Pty Ltd Statement of financial position

as at 30 June 2016

$ $ Assets Cash 56 000 Accounts receivable 84 000 Inventory 25 000 Total assets 165 000 Liabilities Accounts payable ($65,000-$2,000) 63 000 Notes payable 30 000 Total liabilities 93 000 Net Assets $72 000 Equity 72 000 Total equity $72 000



PROBLEM SET B 1.4 Evans Ltd

Statement of profit or loss for the year ended 30 June 2016

$ $ Revenues: Service revenue 250 000 Expenses: Advertising expense 16 500 Depreciation expense 30 000 Insurance expense 24 000 Office expense 68 000 Rent expense 37 500 Repair expense 700 Total expenses 176 700 Profit $53 300

Evans Ltd Calculation of Retained Earnings for the year ended 30 June 2016

$ Retained earnings, 1 July 2015 0 Add: Profit 73 300 73 300 Less: Dividends (20 000) Retained earnings, 30 June 2016 $53 300

Evans Ltd Statement of financial position

as at 30 June 2016




PROBLEM SET B 1.5 Buzzy Bee Ltd

Dunstan Ltd should include the following items in its Statement of cash flows: Cash paid to suppliers Cash dividends paid Cash paid to purchase equipment Cash received from customers Cash received from share issue

Buzzy Bee Ltd Statement of cash flows


Cash flows from operating activities: Cash received from customers $509 200 Cash paid to suppliers (301 500) Net cash provided by operating activities 207 700 Cash flows from investing activities: Cash paid to purchase equipment (210 000) Net cash used in investing activities (210 000) Cash flows from financing activities: Cash from share issue 50 000 Dividends paid (15 000) Net cash provided in financing activities 35 000 Net increase in cash $32 700



PROBLEM SET B 1.6 Goodwin Ltd

Statement of profit or loss for the month ended 31 May 2016

$ $ Revenues: Service revenue 30 000 Expenses: Advertising expense 2 000 Office expense 8 200 Insurance expense 1 200 Rent expense 3 800 Repair expense 600 Total expenses 15 800 Profit $14 200

Goodwin Ltd

Calculation of Retained Earnings for the month ended 31 May 2016

$ Retained earnings, 1 May 0 Add: Profit 14 200 14 200 Less: Dividends (750) Retained earnings, 31 May $13 450

Goodwin Ltd

Statement of financial position as at 31 May 2016




PROBLEM SET B 1.7 Spoon Ltd

Spoon Ltd should include the following items in its Statement of cash flows: Cash paid to suppliers Cash dividends paid Cash paid to purchase equipment Cash received from customers

Spoon Ltd Statement of cash flows


Cash flows from operating activities: Cash received from customers $515 000 Cash paid to suppliers (205 000) Net cash provided by operating activities 310 000 Cash flows from investing activities: Cash paid to purchase equipment (140 000) Net cash used in investing activities (140 000) Cash flows from financing activities: Dividends paid (77 000) Net cash used in financing activities (77 000) Net increase in cash $93 000



PROBLEM SET B 1.8 (a)

Retail Ltd Statement of profit or loss


$ $ Revenues: Sales revenue 167 420 Less: Cost of sales 82 000 Gross profit 85 420 Expenses: Salaries expense 35 000 Advertising Expense 5 000 Insurance Expense 1 300 Rent Expense 2 500 Repairs Expense 15 000 Other expenses 6 250 Total expense (65 050) Profit $20 370

(b)

Retail Ltd Calculation of Retained Earnings for the year ended 31 July 2015

$ Retained earnings, 1 July 2014 12 500 Add: Profit 20 370 32 870 Less: Dividend 7 800 Retained earnings, 30 June 2015 $25 070



(c) Retail Ltd


$ $ Current assets: Cash 24 250 Accounts receivable 8 320 Inventory 21 500 Total current assets 54 070 Non-current assets: Equipment 83 000 Intangibles 6 300 Total non-current assets 89 300 Total Assets 143 370 Current liabilities: Accounts payable 3 300 Total current liabilities 3 300 Non-current liabilities Bank loan 15 000 Total non-current liabilities 15 000 Total liabilities 18 300 Net Assets $125 070 Equity Share capital 100 000 Retained earnings 25 070 Total equity $125 070

(d)

Retail Ltd

Statement of cash flows for the year ended 30 June 2015

Cash flows from operating activities: Cash received from customers $172 350 Cash paid operating expenses (65 050) Cash paid to suppliers (84 500) Net cash provided by operating activities 22 800 Cash flows from investing activities: Cash paid to purchase equipment (36 000) Net cash used in investing activities (36 000) Cash flows from financing activities: Cash from borrowing 15 000 Dividends paid (7 800) Net cash provided in financing activities 7 200 Net decrease in cash ($6 000)



(e) Calculate the Cash account balance at 1 July 2014 (i.e.) the opening balance).

Opening cash balance = Closing balance + decrease in cash = $24 250 + $6 000 = $30 350



PROBLEM SET B 1.9 Nixon Pty Ltd

(a) Working capital = $711 750 – $375 000 =

$336 750

(b) Current ratio = 1:1.9

000 $375

750 $711

(c) Current cash debt coverage ratio = times1.43

2

000 $150000 $375

000 $375

(d) Debt to total assets ratio = 1:0.453

200 522 $1

000 $690 or 45.3%

(e) Cash debt coverage ratio = times 0.66

2

000 $450000 $690

000 $375

(f) Profit margin ratio = 1:0.052

$3,300,000

$172,500 or 5.2 %

(g) Return on assets ratio =

1:0.127$1354200

500 $172

2

$11862000$1522200

$172,500

OR 12.7%

.



PROBLEM SET B 1.10

New Ltd and Old Ltd

Ratio New Ltd Old ltd

(All dollars are in thousands) (a) Working

capital $115 500 - $52 500 = $63 000 $70 000 - $35 000 = $35 000

(b) Current ratio 2.2:1 ($115 500 ÷ $52 500) 2.0:1 ($70 000 ÷ $35 000) (c) Debt to total

assets ratio 53.1% [($52 500 + $245 000) ÷ $560 000] 87.2% [($35 000 + $560 000) ÷

$682 500] (d) Return on

assets 10.7% = 2/490000$560000$

56000$

2/542500$682500$

17500$%9.2

(e) Profit margin

ratio 13.3% = 420000$

56000$ 5.0% =

350000$

17500$

(f) The comparison of the two companies shows the following: Liquidity – NEW’s current ratio of 2.2:1 is better than OLD’s 2.0:1. NEW also has higher

working capital than OLD.

Solvency – NEW’s debt to total assets ratio is lower than that of OLD, indicating that NEW has better solvency. Profitability – NEW has a higher return on assets and profit margin ratio than OLD, indicating that it is more profitable than OLD. Note that OLD’s higher borrowing costs, resulting from its greater reliance on debt, has reduced its profitability.



BUILDING BUSINESS SKILLS FINANCIAL REPORTING AND ANALYSIS

BUILDING BUSINESS SKILLS 1.1 FINANCIAL REPORTING PROBLEM

Domino’s Pizza Enterprises Ltd (a) Domino’s total assets at 30 June 2013 were $189,751,000 and at 1 July 2012 were

$175,319,000 (b) Domino’s had $6,685,000 of inventory at 30 June 2013. (c) Domino’s had Trade and other payables totalling $38,055,000 at 30 June 2013 and

$34,172,000 on 1 July 2012. (d) Domino’s reported sales in 2013 of $182,000,000 and in 2012 of $162,337,000. See

note 5 (e) Domino’s profit before tax increased by $3,121,000 from 2012 to 2013, from

$37,644,000 to $40,765,000. (f) Domino’s accounting equation is:

00$102,582,0

Equity

0$87,169,00

sLiabilitie

00$189,751,0

Assets

(g) Domino’s has current liabilities of $51,561,000 at 1 July 2012.



BUILDING BUSINESS SKILLS 1.2 COMPARATIVE ANALYSIS PROBLEM

Domino’s Pizza Enterprises Ltd vs. Classic Food Ltd

(a) (Amounts in thousands)

Domino’s Pizza Enterprises Ltd Classic Food Ltd

1. Return on Total

assets $28,657/ [($189,751+$175313)/2] = 15.70%

$23,552/[($364,227+$170,296)/2] = 8.8%

2. Profit Margin Ratio* $28,657 / $188,631 = 15.19% $23,552 / $650,738 = 3.6% * Revenue from the statement of profit or loss was used here for the profit margin. If you used net

Sales (Note 5) the profit margin would be 15.75%

(b) The ratios indicate the Domino’s has a stronger profitability because both its return on total

assets and profit margin ratio are greater than those of Classic’s. Overall Domino’s is a stronger performer although Classic is a larger entity.

(c) Working capital $9,079 ($60,383 - $51,304) -$20,300 ($174,700 - $195,000) Current ratio 1.177:1 ($60,383 / $51,304) 0.90:1 ($174,700 / $195,000) (d) Domino’s appears to have better liquidity because it has a higher current ratio and more working

capital. Classic Retail has negative working capital. (e) In order to make an informed assessment of the two companies’ performances you would require

industry information as a benchmark. You would also need as full set of accounts including the notes to the accounts. Classic Foods has doubled in size during last twelve months. So details of any acquisitions and new share issues. Information about the companies from their web pages or media releases



BUILDING BUSINESS SKILLS 1.3 INTERPRETING FINANCIAL STATEMENTS

NuSmart Technology Ltd (a) Creditors lend money to companies with the expectation that they will be repaid at a

specified point in time in the future. During 2015 and 2016 NuSmart Technology’ operating activities used cash instead of generating it, which is not uncommon in start-up companies in this industry. The company has been reliant on borrowing and contributions from shareholders to meet its investing cash needs and provide cash for operations. Creditors may also be concerned about reduced cash holdings which occurred in both years. Creditors may be reluctant to lend to the company without having some additional assurance of repayment. Although details were not provided in the question as to when the company was to generate cash inflows from operating activities it was disclosed that NuSmart Technology had not received any cash from customers in 2015 or 2016.

(b) Shareholders are interested in the long-term performance of a company and how that

translates into its share price. Shareholders may be concerned that the company’s operations have continued to drain cash flows in 2016. However, this may be reasonably expected during the start-up phase of a communications company. There was a new share issue during 2016 so investor/shareholders must believe in the future viability of the technology the company is developing.

(c) More detailed information about the components of operating, financing and investing

cash flows would be useful to determine how cash is being used and in particular, why investing cash flows were a net inflow in 2016. The Statement of cash flows reports information on a cash basis. An investor cannot get the complete story without looking at the statement of profit or loss and statement of financial position as well. A copy of the prospectus used to raise the capital would provide useful information about the elected future cash flows of NuSmart.

BUILDING BUSINESS SKILLS 1.4 FINANCIAL ANALYSIS ON THE WEB Answers to this question will differ over time and depending on the accounting forms chosen by the student, choice of services (part b) and choices of news item (part d). We provide the following solution for Deloitte & Touche as at June 2014.

(a) Choose from –

Australia: “Deloitte offers a broad range of integrated services in areas that include Audit, Tax, Consulting, Deloitte Private, Financial advisory and Risk. Our approach combines insight and innovation from multiple disciplines with business and industry knowledge to help our clients excel anywhere in the world.

Deloitte Assurance and Advisory offers external audit, financial reporting and accounting services. We are innovative suppliers of Financial Instruments Advisory Services, Regulatory Compliance and Consulting, Transaction Services, Carbon Reporting, and tailored assurance based solutions for our clients.

For the consulting “We combine specialist skills in operations, finance, people management, strategy and technology with extensive industry experience to make a difference to the operational performance of our clients.”



Deloitte Private provides services for small business individuals and families. Deloitte’s also offers services of assisting dealing with overseas countries. There are specialist groups within the firm which deal with China, Japan, Korea and Africa.-“Deloitte professionals are involved in almost every aspect of business today - from economics, innovation and sustainability to advisory services on doing business internationally in Africa, China, Japan and Korea. We offer a full range of services to help you tackle all of these challenges, and a lot more. Each service offered gives you the depth, experience and solutions you need to create and innovate. “ New Zealand: “Deloitte brings together more than 1000 specialists providing New Zealand's widest range of

high quality professional services. We focus on audit, tax, technology and systems, strategy and performance improvements, risk management, corporate finance, business recovery, forensics and accounting services. Our people are based in Auckland, Hamilton, Rotorua, Wellington, Christchurch and Dunedin, serving clients that range from New Zealand's largest companies to smaller businesses with ambition to grow.” http://www.deloitte.com/nz/about

(b) Deloittes operate in 150 countries including Albania, Argentina, Aruba, Australia,

Austria, Bahrain, Bangladesh, Belarus, Belgium, Bonaire, Belize, Bermuda, Bosnia and Herzegovina, Brazil, Brunei Darussalam, Bulgaria, Canada, Cayman Islands, Chile, China, Costa Rica, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Ecuador, Estonia, Finland, France, Germany, Gibraltar, Guam, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Korea, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Macedonia, Malaysia, Marshall Islands, Malta, Micronesia, Moldova, Morocco, Netherlands, Netherlands Antilles, New Zealand, North Mariana Islands, Norway, Oman, Pakistan, Palau, Papua New Guinea, Philippines, Poland, Qatar, Romania, Russia, St Maarten, Saudi Arabia, Serbia and Montenegro, Singapore, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Syria, Taiwan, Thailand, Turkey, Uruguay, Vietnam. Regions: Asia Pacific, Europe, North America, Latin America, the Middle East and Africa.

(c) Australia: Careers information and student programs.

Deloitte run a graduate program for new university graduates but also operate student programs (listed below). The advantage of the student programs is that “those who participate in our student programs often secure a Deloitte graduate position well before their peers.”

The student programs are:

“The Summer Vacation Program provides you with paid work experience over the summer (or winter) holidays and the opportunity to obtain a graduate position with Deloitte. If you are in your penultimate year of study you are eligible for our Summer Vacation Program.

The Deloitte Development Program provides you with the opportunity to learn about career options, networking opportunities and how to be successful in gaining vacationer and graduate roles at Deloitte. If you are in your first year of a three year degree, second year of a four year degree or third year of a five year degree, you are eligible to apply.

Our Deloitte Private Young Achievers Program (offered in Sydney only) gives you the opportunity to work flexibly while you are studying to complete your degree, enabling you to gain real business and client experience before you graduate! You are eligible to apply if you are in your first semester of your first year of your degree and are studying an accounting degree that will enable you to be CA eligible upon graduation, for commencement in the second semester of your first year.



Our Deloitte Technology Insight Night is a hands on event for Information Technology, Information Systems, Engineering and Computer Science students. This is not a standard show and tell evening about what we do – you get the chance to actually experience what we do and how we help our clients with their complex technology and digital issues. We host this event in many of our office locations throughout the year. Registration is open to students up to (and including) their penultimate year of an undergraduate or postgraduate technology-focused degree.”

New Zealand: Careers information. Such as The Summer Intern Programme is designed to help you make a sound career choice by showing you what it’s like working with Deloitte and our clients. You’ll be paired up with a buddy to get you instantly involved in challenging and interesting projects.

(d) Australia: June 2014: “Deloitte says we must do better for retiring Australians

Adequacy and the Australian Superannuation System- a Point of View”

There are a variety of papers published by research carried out by Deloitte’s or funded by Deloitte’s e.g. in May they published commentary on federal budget

Also published in May “Australian Business Trends 2014: examining how Australian business can capitalise on the latest global trends.”

Strengthening our already strong relationships with the new global giants such as China and India will become more important than ever as we seek to establish a stronger presence in their markets and their companies continue to enter ours.

The report Australian Business Trends 2014 examines how Australian business can capitalise on the latest global trends has been recently prepared by professional services firm Deloitte.

Both in Australia and New Zealand they also send out monthly Accounting and Tax Alerts and updates in the form of electronic newsletters.



CRITICAL THINKING BUILDING BUSINESS SKILLS 1.5 GROUP DECISION CASE

Permanent Press

(a) (1) This is an expense of the business because Permanent Press has provided its stationery, T-shirts and office decorations.

(2) The donation of the grevilleas was an expense of the business; the planting of

the gardens was likely on the employees’ own time and therefore a personal donation of time by the employees. If Permanent Press paid wages and salaries to its personnel for planting the gladiolas, that would be an expense of Permanent Press.

(3) This is a business expense since the payment is made by Permanent Press

to the charity. (4) As the executives are volunteering their own time, this is not an expense of

Permanent Press. It is a personal cost to the executives. (b) (1) Advertising Expense is the most likely category of those listed because the

name, Permanent Press, and the company logo were on all the gifts. (2) Charitable Contribution Expense is the most likely account. It is not Grounds

Maintenance Expense because the grounds maintained are not those of the company. If the employees were paid wages while planting grevilleas, the cost would be recorded as wages expense.

(3) This is a Charitable Contribution Expense. (4) Not recorded in the company’s financial records at all.



BUILDING BUSINESS SKILLS 1.6 COMMUNICATION ACTIVITY (a)

J. B. Hamilton Ltd

To: Amy Joan From: Student Date: DD/MM/YY

I have reviewed the Statement of financial position of J. B. Hamilton Ltd as at 30 June 2016. The purpose of a Statement of financial position is to report a company’s assets, liabilities and equity at a point in time. It reports what the company controls (assets) and what it owes (liabilities) and the net amount attributed to owners (equity). A number of items in this Statement of financial position are not properly reported. They are:

1. The Statement of financial position should be dated as at a specific date not for a period of time. Therefore, it should be stated ‘as at 30 June 2016’.

2. Equipment is usually listed below Supplies on the Statement of financial position. In a classified Statement of financial position it would be shown as a non-current asset.

3. Accounts receivable should be shown as an asset and is usually reported between Cash and Supplies on the Statement of financial position.

4. Inventory should be shown as an asset on the Statement of financial position.

5. Liabilities and shareholders’ equity should be shown separately on the Statement of financial position. Contributed equity, Retained earnings and Dividends are not liabilities.

6. Contributed equity, Retained earnings and Dividends are part of shareholders’ equity. The Dividends account is not reported on the Statement of financial position but is subtracted from Retained earnings to arrive at the ending balance.



(b)

A corrected Statement of financial position is as follows:

J. B. Hamilton Ltd Statement of financial position

as at 30 June 2016

$ $ Assets Cash 12 000 Accounts receivable 25 000 Inventory 6 000 Supplies 1 400 Equipment 30 750 Total assets $75 150 Liabilities: Accounts payable $21 650 Total liabilities $21 650 Equity: Contributed equity 40 000 Retained earnings *13 500 53 500 Total liabilities and equity $75 150

* Retained earnings $17 000 Less: Dividends (3 500) Ending retained earnings $13,500



BUILDING BUSINESS SKILLS 1.7 SUSTAINABILITY The term sustainability is about making sure the social, economic and environmental needs of our community are met and kept healthy for future generations. Sustainable development must not just be about economic growth but also environmental quality and social equity. Corporate social responsibility (CSR) for business means companies must be aware and have a core understanding of CSR characteristics; an understanding of the basic issues and how they may affect decision making; to be able to apply this basic knowledge with competence to specific activities; and have strategic alignment i.e. have an in depth understanding of the issues and possess the expertise to embed CSR principles into the business decision making process. AGL sustainability report BACKGROUND For Lecturer – for ease marking sections of the sustainability report have been downloaded, but the students naturally need to express in their own words or reference the page in the report. We suggest you set a word limit to indicate the extent of the discussion you require. The 2013 (latest available) was used for this solution. Note the full sustainability report is 113 pages long. “AGL Energy Limited (AGL) is an ASX 50 listed company with over 3.5 million customer

accounts and 2,757 employees. AGL operates Retail, Merchant Energy and Upstream Gas

businesses in New South Wales, Victoria, South Australia and Queensland. In the last eight

years, AGL has invested more than $3 billion in renewable energy generation making AGL

the largest developer of renewable energy assets in Australia over that period.”

1. AGL Approach

AGL has published sustainability reports since 2004. AGL uses The Global Reporting

Initiative (GRI) Sustainability Reporting Guidelines (G3) including the Electric Utility Sector

Supplement. These guidelines were used as it provides a comparable framework for

reporting so stakeholders can understand and also provides AGL with guidance on the

disclosures contained within the report. AGL has self-assessed (and had it audited) the

extent to which the GRI index applies. A full GRI content index is included on pages 99 to

110 of the 2103 sustainability report 2and AGL indicate how these items are addressed and

where it is reported.

Using the above approach in 2010, AGL established a framework for sustainability reporting.

“Twelve strategic indicators of success were developed, together with visions to guide

performance in the longer term. Performance data as well as forward targets for each

indicator have been published since 2010. An account of performance against each of the

FY2013 sustainability targets is detailed ….. together with new commitments for FY2014.”

“Performance data in this report has been structured into six chapters, representing the

categorisation of AGL’s sustainability risks: Economic, Customers, Community, People and



safety, Sustainable energy (formerly Climate Change) and Environment. Within each

chapter, two focus areas have been identified. Together, these 12 focus areas represent

those issues considered to be the most material sustainability challenges for AGL”

2. AGL’s achievements: results and how measured. For health and safety and the environment only.

Health and safety:

“AGL’s goal is to engage our employees in ways that support our business, grow their skills

and deliver outstanding results in a safe and sustainable way. The two key focus areas for

the People and safety chapter of this report are employee engagement and health and

safety.

Health and safety: Health and safety performance is indicative of the values that underpin an

organisation, the business ‘culture’, and the effectiveness of health and safety policies and

procedures. Health and safety performance is also a significant influencing factor for

employee engagement.

Health and safety section of the report: From the table below AGL did not achieve its goal

of < 4.9%.

Vision Target FY2013 Performance FY2013

Target FY2014

Zero harm Total Injury Frequency Rate <4.9%

Total Injury Frequency Rate was 5.9

Total Injury Frequency Rate <5.0%

Approach:

“Providing a safe and healthy workplace for employees and contractors is a key priority for

AGL. Safety performance is regularly monitored at the AGL Board level through the quarterly

meetings of the Safety, Sustainability and Corporate Responsibility Committee. Safety

performance is also monitored by the Executive Team and reviewed in leadership and team

meetings across the business. AGL assesses workplace risks in consultation with

employees and, where appropriate, independent external advisors, and manages these risks

by identifying and implementing suitable controls. HSE risks are managed as a component

of organisation-wide risks, using the Fully Integrated Risk Management approach. Key HSE

risks include: contractor safety management; slips/trips/ falls; psychological injury; fatigue;

musculoskeletal injury; working remotely; working at heights; flammable gas; electricity; and

customer contact hazards.”



AGL measures and tracks safety performance using a number of trailing performance

indicators based on reported safety incidents. The trailing indicators include Total Injury

Frequency Rate (TIFR) and Lost Time Injury Frequency Rate (LTIFR). AGL also tracks

leading indicators of Health and Safety to provide insight into trends. The leading indicators

include HSE activities in Action Plans, safety and wellbeing conversations and ‘near miss’

incident reporting. At AGL an incident is defined as anything that resulted or had the

potential to result in an injury or illness to any person, damage to plant, adverse impact to

the environment or reputational damage. Incidents that have high potential risk are reported

as Significant Incidents. AGL also records ‘near misses’ which are events that did not result

in an injury, but had the potential to do so. Total injury frequency rate (TIFR)1”

Results:

“In FY2013, AGL’s Total Injury Frequency Rate (TIFR) decreased to 5.9 from 6.6 in FY2012.

Of the injuries reported:

>>A third were ‘non-event related’ and defined as occupational illnesses, where repetitive

exposure resulted in soft tissue damage/joint deterioration or were mental health illnesses

(predominantly stress related); and >>45% were a result of a slip, trip or fall.

For FY2014, AGL will separate Occupational Illness Frequency Rate (OIFR) from TIFR. The

OIFR incorporates those longer term occupational injuries that are gradual onset and cannot

be attributed to a specific event. This will provide a better understanding of the nature of

injuries across the organisation. The purpose of capturing injury data is to inform HSE

initiatives thereby increasing the granularity of data by splitting out injuries that occur from a

single occurrence from those where there is a gradual development of symptoms. This will

enable a better understanding of HSE risks and an appropriate allocation of HSE resources.”

AGL’s has six different measures injury frequency:

“1. Lost time injury frequency rate( LTIFR) in FY2013 decreased to 3.4 from 4.2 in FY2012.

There were 15 lost time injuries during FY2013 compared to 17 in FY2012.

2. Medical treatment injury frequency rate (MTIFR)- -MTIFR for FY2013 increased slightly to

2.5 from 2.4 in FY2012. There were 11 medical treatment injuries during FY2013 compared

to 10 in FY2012.

3. Fatalities- In FY2013 there was no fatalities.



4. Incidents- Incidents that have the potential to cause significant harm to people, plant,

environment or the business are classified and reported as significant incidents. The number

of significant incidents reported in FY2013 was 24, compared to 28 in FY2012. This

reduction has been the result of extensive work to address issues relating to electrical

safety, work at heights and the safety management of contractors.

5. Contractor safety performance -AGL monitors and reports the LTIFR of contractors, to

provide a more comprehensive representation of AGL’s safety performance. In FY2013 the

LTIFR for contracted workers was 3.5, which whilst comparable to the LTIFR of 3.4 for AGL

employees, is an increase from 1.1 in FY2012. The major factor in this increase is related to

improved focus on incident reporting to make sure injuries were recorded.

6. AGL Loy Yang Safety Performance -The TIFR for AGL Loy Yang was 5.3, a 66%

reduction from 15.4 in FY2012. As of 30 June 2013, the power station has been free of lost

time injuries for 712 days.”

During April and May 2013, AGL surveyed a number of stakeholders (both internal and

external) to gauge their views on AGL’s material issues and the level of importance they

attach to them. The survey of stakeholders revealed - “Workplace health and safety:

Ensuring that employees stay safe at work every day. In the materiality survey, this ranked

as the issue of most importance to respondents, the majority of whom were employees.”

Environment:

Approach:

“A number of AGL’s operations have a material environmental footprint and have the

potential to interact with, and impact on, various aspects of the environment. AGL’s

corporate health, safety and environmental management system, Life Guard, establishes a

framework of requirements, policies, environmental standards and compliance guides based

on the ISO 14001 Environmental Management Systems standard. Life Guard provides a

framework to enable continuous improvement in health, safety and environmental

performance and facilitates the pro-active management of environmental risks and

compliance responsibilities.

AGL’s environmental management program is risk-based and driven by a desire to prevent

any harm to the environment in areas where AGL operates. Management of water is a

particularly critical environmental issue. Governments and communities expect the energy

industry to act responsibly so that water resources are not harmed by exploration and



development activities, or energy production operations. The two key focus areas for the

Environment chapter of this report are therefore environmental risk and water management.

Environmental risk: AGL’s environmental program is driven by the environmental risk

profile of the business and by regulatory requirements. AGL’s long-term vision is to have an

environmental risk profile that is ‘As Low As Reasonably Practicable’. This aspiration

incorporates both the need to operate in an environmentally responsible manner and the

need to target resources and efforts on a risk basis.

Water management: Management of water resources is a critical environmental issue

facing Australia and one that is relevant to AGL’s business. AGL’s long-term vision is to be

recognised as a prudent and responsible user of water that does not adversely impact on

local water resources.”

Vision Target FY2013 Performance FY2013

Target FY2014

Environmental Risk To have an environmental risk profile that is As Low As Reasonably Practicable (ALA RP).

100% of approved risk register actions for the highest residual environmental risks implemented in accordance with targeted milestones.

96% of actions (or 60 of 62) were implemented in accordance with targeted milestones:

100% of approved risk register actions for the highest residual environmental risks implemented in accordance with targeted milestones.

Water management To be recognised as a prudent and responsible user of water that does not adversely impact on local water resources.

Increase number of dedicated monitoring bores and stream gauging sites relative to overall number of CSG wells/sites.

The number of dedicated monitoring bores and stream gauging sites increased from 73 (61 monitoring bores to 12 stream gauging sites) from 1 July 2012 to 103 (88 monitoring bores to 15 stream gauging sites) at 30 June 2013. This represents an increase in the ratio of water monitoring sites to gas wells from 0.45 to 0.63.

Analysis of significant water usage across business units and development of KPI’s for water usage and wastewater reduction by end June 2014.



How measured and results:

“AGL’s key environmental risks are systematically identified and reviewed in workshops run

in the Upstream Gas and Merchant Energy business units. The workshops involve a diverse

range of operations personnel and environmental specialists. Given internal and external

factors result in continuous changes to AGL’s environmental risks, risk registers and actions

to reduce risks are reviewed on a regular basis to ensure their effectiveness.

To drive the timely completion of actions that have been approved by AGL’s management to

mitigate AGL’s highest residual environmental risks, AGL’s environmental risk target for

FY2013 was to have 100% of such actions implemented in line with targeted milestones.

The target was applied to AGL-operated sites that had environmental risk registers in place

as at 1 July 2012, with the exception of AGL Loy Yang which was acquired by AGL on 29

June 2012.

During FY2013, AGL’s highest residual environmental risks included risks related to surface

water, land and groundwater at a number of power stations. Target actions designed to

control these risks were developed and approved and 96% of actions (or 60 of 62) were

completed within the allocated timeframes. The two outstanding actions related to an

internal review of screen washing practices at AGL Torrens and the necessary actions will

be implemented in the first quarter of FY2014.

Some examples of activities completed in FY2013 to reduce environmental risk include:

>> conducting a review of fuel and chemical storage and the potential for loss of

containment at AGL Hydro

>>developing a Fuel Management Procedure for AGL Hydro which outlines environmental

management requirements associated with the transport, storage and handling of fuel,

including the management of underground petroleum storage systems

>> reviewing documentation relating to inspections and monitoring at AGL Torrens and AGL

Hydro power stations

>> reviewing environmental content within Asset Management Plans for both AGL Torrens

and AGL Hydro power stations

>> commencing targeted contamination investigations at selected AGL Hydro power

stations, as well as continuing remediation work at AGL Torrens.”

“Overall, AGL’s FY2013 environmental risk target was effective in driving the completion of

risk register actions, thereby further reducing AGL’s environmental risk profile. The target will

be maintained in FY2014 and extended to AGL Loy Yang where the highest environmental

risks relate to surface water, land, groundwater and air.”



Results from stakeholder survey - “Environmental impact: Complying with legislative and

licence obligations with respect to the environmental impact of AGL’s operations. Again, this

was an issue ranked of high importance by respondents to the materiality survey.”



BUILDING BUSINESS SKILLS 1.8 ETHICS CASE

Mobile Phones Pty Ltd

(a) The stakeholders in this case are:

You, as chief financial officer Jack Frost, managing director Users of the company’s financial statements. (b) The ethical issue is the continued circulation of significantly misstated financial

statements. As chief financial officer, you have contributed to the preparation of misleading financial statements. Jack Frost and any other directors are responsible for the preparation of the financial statements issued by Mobile Phones Pty Ltd. You have acted ethically by telling the company’s managing director. The managing director has reacted unethically by allowing the misleading financial statements to continue to circulate.

(c) As chief financial officer, you have a professional ethical responsibility to attempt to

persuade the managing director not to issue misleading financial statements (they would mislead users, cause damage to the company’s reputation and possibly incur fines). Other actions that may be considered include reporting the matter to other directors and resigning. If the statements are audited, the matter may be referred to the auditors.

Financial Accounting Reporting Analysis and Decision Making 5th Edition Carlon Solutions ManualFull Download: https://alibabadownload.com/product/financial-accounting-reporting-analysis-and-decision-making-5th-edition-carlon-solutions-manual/

This sample only, Download all chapters at: AlibabaDownload.com

https://alibabadownload.com/product/financial-accounting-reporting-analysis-and-decision-making-5th-edition-carlon-solutions-manual/

Documents

Financial Accounting: Recording, Analysis and Decision Making · 2019-04-10 · Financial Accounting Reporting Analysis and Decision Making 5th Edition Carlon Solutions Manual Full